Square: Betting on Digital Wallets in the U.S.

A deep-dive on Square, specifically their Cash App product.


Square, Inc. enables sellers to accept payments and aggregate sales analytics. Through it's Cash App Network, it provides a bank account, brokerage account, and a peer-to-peer (P2P) transaction platform.

Product Mix

  • Cash App
    • Allows users to store, spend, send, and invest money. Cash App is becoming a one stop personal finance app for consumers and business owners.
  • Magstripe Reader
    • Accepts contactless, swiped, and chip reader transactions
  • Square Stand
    • Enables an iPad to be used as a payment terminal or full point of sale (POS) solution
  • Square Terminal
    • Payments device and receipt printer to replace traditional keypad terminals
  • Square Register
    • Combines Square's hardware, POS software, and payments technology into one product for business owners
  • Weebly
    • Website hosting, designing, and domain name registration
  • Tidal
    • Square acquired a majority stake in music streaming service, Tidal, for $297 million in March 2021


Founded in 2009 by Jack Dorsey and Jim McKelvey, Square has been a growth story since its inception. After releasing their first batch of card readers that transmitted data via the headphone jack of smartphones, tablets, and computers, Square  was processing $1 million in gross payment volume (GPV) per day within months. Square defines gross payment volume (GPV) as the total dollar amount of all card payments processed by sellers using Square (includes Cash app). In 2011, within a year of that initial release, gross payment volume soared to $3 million/day. In August 2012, Square partnered with Starbucks to process transactions for card payments. That year, they processed $6.5 billion in gross payment volume (GPV) excluding Starbucks transactions.

As a result of their quality products, expansive marketing, and innovative fintech ecosystem, Square processes upwards of $100B GPV per year (excluding Starbucks transactions), even during a pandemic! In the past several years, a lot of their growth can be attributed to Cash App.

So, what's Cash App all about? It's an app that allows for direct peer-to-peer payments through mobile devices. With your Cash App balance, users have the option to hold their cash like a savings account or invest it in stocks and/or cryptocurrencies. Additionally, users have the ability to sign up for a "Cash Card" debit card with instant discounts (boosts) for your favorite companies.

Despite starting off as a side project, Cash App has become Square's revenue driver and growth engine. Today, Cash App is the second largest digital wallet in the US and accounts for 62% of Square's revenue (2020).

Now that we all understand the product, let's see where Cash App is headed. To project Cash App's growth moving forward, we can use Maximilian Friedrich's data on China's adoption of digital wallets to serve as the best frame of reference:

To highlight the significance of this for Square, China's mobile payment methods "generated $43 billion in 2019 revenues, far exceeding the approximate $22 billion for the rest of the world collectively" (McKinsey 2020 Global Payments Report).

While the U.S. is far from China in terms of mobile payment adoption, Square has built the ecosystem for us to get there. By enabling peer-to-peer (P2P) payments, Cash app has taken advantage of network effects to acquire millions of new customers with a relatively tiny cost per acquisition (CAC). For reference, the CAC for a retail checking account from a traditional bank is between $350-$1,500; CAC for a brokerage platform is between $750-$1,000. All the while, Cash App serves as a bank, a brokerage account, a P2P transaction platform and Square's CAC is less than $5. Crazy right. How does that work? Peer-to-peer (P2P) transactions serve as the primary acquisition channel for Cash App. P2P transactions have robust network effects because every time a customer requests or sends money, Cash App can acquire a new customer or reengage an existing customer. While Square doesn't generate revenue on the majority of peer-to-peer (P2P) transactions, they're able to acquire new clients for next to nothing.

The power of network effects has led to the exponential increase of Cash App monthly active users. In 2020, Square processed payments for 36 million monthly active users.

Counts only users that are active on a monthly basis. Daily active users are ~7.5 million (2020)

As a result of their low customer acquisition costs, Cash App users generate Square an average return on investment (ROI) of 6x or greater over three years as customers.

Square IR

While a lot of their growth is due to P2P transaction network effects, a significant portion of their growth can be attributed to spectacular marketing. To value the significance of Cash App's marketing efforts, we can compare the Google Trends of Paypal's Venmo vs. Square's Cash App.

Google Trends

Google Trends tracks searches for a given term and displays the term's search interest on a scale of 0-100 (100 indicates peak popularity). The graph above represents google search interest for "Venmo" and "Cash app" from 2016 until now. While Venmo was clearly the first popular peer-to-peer payments app in the U.S., Cash App's interest has now surpassed Venmo's thanks to viral marketing campaigns.

While they've used a wide variety of marketing tactics for Cash App since its inception, here's an example of their latest campaign:

With over 200 million followers across her social media platforms, Miley Cyrus is the latest celebrity (among many) to promote Cash App to their followers.

As a result of these effective marketing campaigns, peer-to-peer (P2P) transactions, and network effects, Cash App should continue to grow exponentially and serve as the #1 P2P transaction platform in the U.S.

We can infer that Square's success with using artists to promote Cash App has lead to their majority acquisition in Tidal in March of 2021. The acquisition will likely connect more artists with Square marketing programs, further allowing them to expand their user base. Utilizing Tidal's user data, Square will be able to pinpoint their target demographics by partnering with specific artists to cater to those demographics.


Thanks to Square's gross payment volume growth and Cash App growth, their revenue has increased exponentially.

Over the course of this high growth period, Square has managed to drastically expand gross margins.


At a market cap of $97 billion, Square is not cheap. That said, every great company trades at a multiple. In the case of Square, their price-to-sales ratio has stayed above 10 since last year. In comparison, they've traded at a similar multiple to their greatest competitor, PayPal.


In order to safely invest in Square, it's imperative that these two factors remain:

  • Mobile payments volume continues to grow in the U.S.
  • The Cash App Network maintains its place as one of the premiere options for peer-to-peer transactions

Potential Risks

As with all companies trading at high multiples, there is inherent risk in holding shares of Square, Inc. If Square's growth flattens sooner than later or if new entrants poach Cash App's monthly active user base, we'll likely see a contraction in valuation.

Where to

First and foremost, let's address their two most recent acquisitions: Credit Karma Tax for $50 million and majority stake in Tidal for $297 million. Credit Karma is a do-it-yourself tax filing system that should be integrated within Cash App's brokerage platform soon. In regards to Tidal, there is likely a plan to incorporate artists, producers, venues, and labels into Square's seller ecosystem. Similar to what they've built for retail businesses, I think Square will try to take over payment processing and financing for content creators by building a space where they can sell (merch, NFTs, music, etc.) to their followers.

Based on Square's Cash App hiring, the company is in the process of building "Cash Network". One of the job listings states the mission as follows, "the fastest, most reliable, easiest to use, […] and most sought after payment network in the U.S."

Based on my analysis and knowledge of the finance industry, Square's execution has been immaculate so far. I can't wait to see what this decade brings for Square and financial technology.

As for traditional banks, "strong players are already creating the new generation of payments. Those that cling to old ways will be left behind." (McKinsey 2020 Global Payments Report).

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